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Its report on the allocation of coal blocks is marred by a major legal error

The legal fraternity celebrated the 50th anniversary of the Supreme Court of India in 2000 with a book, Supreme, But Not Infallible. The unusual title of the book was a powerful way for the legal fraternity to remind itself, and the public, that the highest court in the land is fallible, that it can and does make mistakes.

The ongoing controversy over the CAG report on the allocation of coal blocks is a salutary reminder to the country that the CAG, another “supreme” accountability institution, is also not infallible. The CAG audit report on the allocation of coal blocks suffers from a grievous legal error that goes to the root of the report and vitiates its conclusions.

The CAG’s argument is that the delay in introducing competitive bidding to issue mining leases could/ should have been avoided by the Centre through administrative orders, instead of amending the law. What the CAG failed to recognise is that legally the legislative amendment route could not have been avoided. Establishing “the competitive route, through administrative arrangements”, as endorsed by the CAG, would have been illegal.

The facts are straightforward. Under the law prevailing at the time, only state governments had the power to issue mining leases.

Section 10 of the Mines and Minerals (Development and Regulation) Act, 1957, says that applications for permits and mining leases in respect of any land in which the minerals vest in the government shall be made to the state government. Section 10 also says that “on receipt of an application under this section, the state government may, having regard to the provisions of this Act and any rules made thereunder, grant or refuse to grant the licence or lease.” With respect to coal, the Central government can approve the decision of the state government prior to the issuance of the concession, this approval role being required precisely because the Centre did not have the power to select the allottees in the first place, through competitive bidding or otherwise. The purpose of the central approval is to ensure that requirements under Central laws were complied with, rather than to substitute the power of the state government.

In the face of this explicit statutory provision, it would have been illegal for the Centre to do what the CAG endorses — introduce competitive bidding through administrative procedures giving the Central government